OTP Bank Romania estimates slowing growth and deteriorating inflation outlook

The economic recovery will slow substantially in 2022, as the GDP growth is estimated to stay below 2% this year as inflation erodes real income, monetary policy tightens and supply chain problems could further develop, according to OTP Bank Romania.

“In regional context, during the last months of 2021 Romania went back from the second to the fourth best performing country in the CEE region after Serbia, Poland and Hungary if compared to the pre-virus GDP level. At the same time, data for January-February suggest mild improvements, while the Russia-Ukraine conflict deteriorates the outlook. Although trade ties are moderate, higher energy prices, slower euro area growth and the increasing risk premium will take its toll on activity and will fuel the increase of inflation”, said OTP Bank analysts. As it follows, Romania’s outlook on economic growth for this year will be below average compared to regional peers, while the need for fiscal consolidation is more dire that in other CEE countries, due to the fact that Romania is under Excessive Deficit Procedure.

“Since the Government has put a cap on energy prices for the next year, we don’t expect another regulated energy price hike until next spring. At the same time energy costs for companies could still increase, and the Russia-Ukraine conflict will add to pressures on food prices. Going further, we foresee an inflation peak at 9.5% for April-May, with a good premise for a gradual decline afterwards”. To fight this situation, the central bank has followed through with 50 bps base rates hikes, the last increase taking place at beginning of April.

Alongside other monetary policy tightening measures, the National Bank of Romania will likely continue this path, so that the base rate could reach the 4,5% threshold by the end of the year, a release from the OTP Bank Romania shows.